How tech start-ups can benefit from innovation

Partly due to the constant advancement of the science, digital and tech industries, tech start-ups have a positive success rate that has innovation at its core. Innovation is often the key to this success due to the fact that it drives competitive advantage, growth and a business’s profit. Securing the funding that it takes to undertake innovative development can be incredibly time-consuming, frustrating and, in turn, costly. Unfortunately, this can lead many start-ups to failure.

An issue that is becoming apparent in recent times is the fact that so many start-up companies fail to claim their entitlement to huge sums of cash back every year. This comes in the form of Research and Development tax credits (R&D) and, in many cases, this could be thousands of pounds. For a tech start-up, it could also mean the difference between a company’s survival or death. Their massive underuse is surprising, especially since R&D tax credits happen to be perhaps the largest innovation-funding mechanism for business.

Considering the value of innovative companies to the UK’s economic growth, it should be no surprise that the government would want to provide significant support. One of the key methods of incentivising this innovation is through the R&D tax credit scheme, which offers vital support by funding up to 33.35% of the costs for small or medium enterprises (SME) who are undertaking eligible R&D activities. A credit scheme is also administered by HMRC, enabling companies who have no use for a reduction in corporation tax to gain cash in lieu of this relief. To put it simply, if your tech start-up is innovative, the UK government wants to support your growth by funding essential costs.

Despite recent figures showing that over £14bn has been put back into UK businesses since the scheme began, the uptake of the R&D incentive is actually very low. Less than 2% of UK registered companies (a figure of only 48,000) have claimed an R&D entitlement.

Promisingly, the R&D tax credit scheme is becoming increasingly recognised by businesses and tech start-ups. However, its range remains much larger than many people believe. Unfortunately, due to this lack of knowledge and awareness about R&D, many tech start-ups are missing out on valuable financial support.

In fact, any UK limited company regardless of its industry sector is eligible for R&D. As long as your company is offering development activity that will attempt to achieve an industry advancement that is either scientific or technological, you can apply.

When it comes to the average annual claim for R&D, most small and medium enterprises will receive £55k whilst large companies tend to receive over £450k. F.Initiatives assists clients to define any scheme-compliant activity, which in turn will make your claim process a straightforward one.

It is also worth understanding whether your company can gain scheme-eligible investment costs on continuing, completed or failed project activity. A positive indication to this is if you are generating or looking for ways to improve how products, materials or devices are created. Also, if you are looking to improve manufacturing or engineering services or processes; or if you will be developing IT software, solutions or bespoke systems/products.

In addition to this, R&D activities can be initiated by or for the UK claiming company that is based globally. As long as you can reach back two accounting years, and you have your current and every foremost year of qualifying activity. Because of this, loss-making companies can benefit from a cash credit. They can also offset against any future profits.

However, for your claim to be a successful one, you must describe the scientific or technological advance that will be sought or achieved by your start-up. It is also essential that you are able to state any uncertainties that will be involved, and the methods and processes that will be applied to overcome them, regardless of success or failure. This process is one that isn’t always easily performed by a small or medium enterprise. Even though this may appear to be a daunting process, it can be achieved with the help of R&D tax credit experts and it can transform the success of your tech start-up.

If you’d like to find out more about R&D tax credits, contact us at F.Initiatives today and find out whether you’re eligible.

About Us

F. Initiatives is a consultancy firm specialised in financing innovation. Our consultants are all engineers or PhDs with collective expertise that covers every scientific field. Whatever your industry, they understand your business.